China's Rare Earth Lie will Cost You

Brian Hicks

Written By Brian Hicks

Posted October 20, 2010

Editor’s Note: Just hours after penning this report, word that China screwed us crossed my desk. The Chinese are halting the very earth supply shipments we so desperately need…

According to The New York Times, the Middle Kingdom “quietly stopped shipments of so-called rare earths” to the U.S. and Europe — thanks to a U.S. investigation into whether China was violating the World Trade Organization rules by subsiding clean energy exports and limiting clean energy imports.

And there’s no word on how long the ban could last. China may even consider further reductions of up to 30% in 2011 rare earth quotas (after cutting them by 72% in July). While it’s bad news for the States and products that depend on rare earths… it couldn’t come at a better time for our Greenland rare earth trade, which remains a buy.

But this isn’t the only move by China this week… They tried pulling a fast one with Bloomberg, too.

More on that — and my Greenland play — below.


China keeps tightening that noose… and we keep buying the bull.

The Middle Kingdom’s Ministry of Commerce wants us to believe that its seemingly endless supply of rare earth elements (REEs) could be exhausted in the next 15 to 20 years.

As the ministry told Bloomberg, “We cannot rule out that China may need to rely on imports sometime in the future for these minerals, instead of supplying the world.”

Chao Ning, section chief of foreign trade at the ministry, rattled off some numbers to show the world how much his country’s rare earth deposits have dwindled in a little more than a decade: “Domestic rare earths deposits dropped to 27 million metric tons by the end of 2009, or just 30 percent of the world’s total known reserves, from 43 million tons, or 43 percent of the world total, in 1996…”

And people are actually buying this stuff!?

Come on… It’s nothing more than an excuse for China to restrict rare earth exports even more!

And it means our reliance on the country’s near-monopoly grows riskier by the day. 

According to Mining News, “Lanthanum [one of the 17 rare earth metals] is a vital catalyst in oil refineries. Oil refineries produce jet fuel, and China almost has a monopoly on their rare earth metal. This means China can close down the whole U.S. Air Force and Navy within months.”

For crying out loud, that Bloomberg article looked like China’s PR attempt to cover its ass — with Chao as the spokesman:

“China cannot afford to continue to carry the burden of supplying the world, from a strategic, environment and economic point of view.”

“China is not the only country that has these deposits, but it has been carrying the lion’s share of the supply in more than a decade, at the cost of quickly depleting its own resources and hurting its environment.”

Give us a break.

Sure, the depletion argument holds water. But given the country’s unreliability with statistics, I’m not buying this 10-to-15-year argument…

If depletion rates were really as high as China says they are, they’d raise prices.

It seems China is telling us to either accept its rare earth monopoly, or take on the expenses of mining and producing these elements ourselves. 
We made our bed
As economist Paul Krugman said in a New York Times op-ed piece:
Policy makers simply stood by as the U.S. rare earth industry shut down. In at least one case, in 2003 — a time when, if you believed the Bush administration, considerations of national security governed every aspect of U.S. policy — the Chinese literally packed up all the equipment in a U.S. production facility and shipped it to China.
For years, we’ve been moving backwards — allowing China to become to rare earth elements what the Middle East is to oil.
The United States used to be home to one of the top miners of rare earth…
Now, due to regulations, the future of our military intelligence, technology, economy, and everyday lifestyle could be compromised if we do not secure a rare earth resource or stock pile.
The government can talk about starting up domestic mining programs again, but that means nothing right now… It could take up to 15 years just to rebuild the supply chain.
We don’t have that kind of time.
Even Krugman will tell you the U.S. was dumb enough to put itself in a position of dependence on China.
But we don’t have time to play the blame game…
We need supply — and fast, as the U.S. and China’s rare earth trade wars become more contentious by the day.
You can bet that the rare earth market will garner even more attention as we move forward, and you’d be dumb to stand in the way of any stock involved.

Three ways to play this situation

One, buy Molycorp. The mining company has pushed to increase production to 5,000 metric tons by January 2011 and to 20,000 metric tons per year by the close of 2012.

Two, diversify with Rare Element Resources — a play in gold and rare earth at the Bear Lodge property in Wyoming. While it has no revenue to speak of yet, and won’t show profitability until 2015, it’s still finding a good supply of rare earth elements.

Three (and what I recommend doing), is to go after junior mining stocks that are exploring and mining areas with rare earth deposits, such as in Greenland.

Greenland’s wealth is its vast store of rare earth elements…

Without REEs, some of our most important modern technologies could never exist.

Metals such as cerium, promethium, europium, and many of the remaining 17 other REEs are essential to all modern electronic devices that use electric motors, photo optics, solar cells, magnets, and rechargeable batteries.

They’ve become the most sought-after metals in the world — searched for and hoarded by governments and massive corporations alike. China knows this. That’s why they’re throwing their weight around and exercising power plays.

Bottom line: We must have a steady supply chain of rare earth — from outside of China — or we’re screwed.

The good news? I’ve had my eye on a stock that’s just starting to pop from the coming rare earth demand…

Following recent drill test results and an overall jump in REE prices just within the last week, this Greenland mining stock has already jumped up almost 20% over the past few days.

But it won’t stay cheap for long…

Click here to learn more about how to secure your financial future with this still little-known rare earth miner.

Stay Ahead of the Curve,

Ian L. Cooper
Energy and Capital

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